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Airlines may not get tax relief on fuel
October, 30th 2008

The sharp fall in crude price might have come as a relief to airlines but could adversely affect one big relief the industry was hoping for a uniform 4% sales tax on jet fuel, which is much lower than the existing rates.

The aviation ministry has long been requesting the finance ministry to term aviation turbine fuel (ATF) as a declared good so that a uniform sales tax of 4% is levied on it throughout the country. But highly placed government officials said with oil plummeting to a 15-month low now, giving in to this demand may no longer be warranted.

In the past when oil was over $145 a barrel, airlines said they may break even the level of $70. Even if the rupees depreciation against the dollar is taken into account, current levels of $55-65 that could fall even further on fears of overall reduction in consumption with the slowdown dont make a strong case for declaring ATF a declared good. States should take the lead now as a move from our end would be difficult, said the source.

Moreover, there are legal issues in which amendments to Central VAT and its schedule would be required to do so, something that this government at the fag end of its tenure may be unlikely to do, the official added. However, the finmin may look at providing some relief from custom and excise duties.

Indian airlines are deep in red mainly on account of the fact that ATF prices in India are among the highest in the world because of high base charges and even higher taxes. The problem is compounded as states levy very high sales tax. The countrys busiest airports, Delhi and Mumbai, that account for 60% of all domestic flights charge 20% and 25% sales tax, respectively. The aviation ministry has been lobbying with both states and the finance ministry for relief. Only some states like Andhra Pradesh and Rajasthan reduced sales tax on ATF.

In fact, theres a growing view in government that Jets recent episode of firing and hiring 1,900 employees in one go was a ploy to attract the governments attention to the sectors demands. Airlines have been downsizing in past few months.

First Go Air fired some staffers and then JetLite and Kingfisher also did that. But the numbers were such that the airlines could downsize without any hue and cry.

In this case, 1,900 employees were fired in a go and the adverse reaction and its pressure on the authorities could have been anticipated, said the official.

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